A surviving spouse has a number of options regarding how to deal with IRAs inherited from his or her deceased spouse. The age of both the deceased and surviving spouse will most often dictate the decision as to how to proceed. Typically, a surviving spouse who is age 59 ½ or older will do a spousal rollover with the assets. A spousal rollover allows the surviving spouse to consolidate the inherited IRA into her own, thereby minimizing future paperwork and confusion. She will have full and unfettered access to the assets (other than potential taxes due).
June is PRIDE Month. This June also marks the sixth anniversary of the landmark Supreme Court case Obergefell v. Hodges, which legalized same-sex marriage. In the wake of this decision, millions of same-sex couples headed to the alter over the past few years.
Many of these newlyweds, never expecting to see a day when they would be allowed to marry, may not have paid much attention to the special breaks that married couples receive under the tax code. When it comes to IRA rules, spouses have many advantages, and couples in same-sex marriages are no exception. Here are four special IRA rules for spouses that same-sex couples should know about:
Question:
We have a client that owns two substantial IRA accounts plus a smaller beneficiary IRA. Does the beneficiary IRA have its own RMD rules (the client has owned it for 10 years and has been taking RMD’s from it based on the old stretch IRA rules)? Or can the beneficiary IRA be lumped together with the other IRA’s for RMD calculation purposes? If so, can this year’s total RMD be withdrawn from the beneficiary IRA without having to touch the other two IRA’s?
Question:
Hi, I inherited my husband's 401(k) when he died last year. I kept the assets with the 401(k) administrator, believing I had to do that to take distributions without 10% penalty. (I am under 59 ½ years old). If I roll over the 401(k) to an inherited IRA, will I still be able to take penalty-free distributions?
Thank you
Donna
Question:
Has the deadline to make an IRA contribution for 2020 been extended since the 2020 tax filing date has been extended to May 17, 2021?
Robert
Answer:
Hi Robert,
Yes. The 2020 IRA contribution deadline is also extended to May 17, 2021.
By Sarah Brenner, JDDirector of Retirement EducationFollow Us on Twitter: @theslottreport Question: I am 75 years old and am planning to...
Question:
We had a client who died with no beneficiaries on his $500k 401(k). He wasn’t married and only 45 years old. His parents are disclaiming rights to the inheritance, so it’s going to his siblings. Is there any way these two siblings can stretch the retirement account into an inherited IRA? If so, what does that look like?
Thanks,
Patrick
Answer:
Hi Patrick,
The siblings may still be able to use the stretch even after the SECURE Act eliminated it for most beneficiaries.
The SECURE Act made many changes to the rules for beneficiaries who inherit retirement accounts. One of the most significant ones is the end of the stretch IRA for most beneficiaries. However, there are some beneficiaries called “eligible designated beneficiaries” (EDBs) who can still use the stretch. How well do you understand this new class of beneficiaries? Take our quick quiz. The answer may surprise you.
Question:
Hello,
If an individual has a solo 401(k), is this considered a "retirement plan at work" that would limit the deductibility of IRA contributions?
Thanks!
Susan
Answer:
Hi Susan,
Being an active participant in a retirement plan for the year can limit your ability to deduct your traditional IRA contribution, depending on your income. Participating in a solo 401(k) would count as active participation for this purpose.
For trusts that inherited an IRA in 2019, an important deadline is approaching. October 31, 2020 is the due date to provide required trust documentation to the IRA custodian to ensure that the longest payout period possible is available for the inherited IRA.
Generally, only individuals who are named on an IRA beneficiary form can be designated beneficiaries. A trust is not an individual but if the trust qualifies as a "look through" or "see-through" trust, then each individual beneficiary of the trust can qualify as a designated beneficiary for IRA distribution purposes. For trusts that inherited in 2019, prior to the enactment of the SECURE Act in 2020, this would allow each trust beneficiary to stretch payments over the life expectancy of the oldest beneficiary.
